NBC and Comcast, a Takeover for Hollywood to Watch

Michael Cieply|The New York Times

Monday, 30 Nov 2009 | 4:54 AM ETThe New York Times

SHARES

Not long ago, a first meeting between Hollywood executives and the potential new owners of their studio might have turned on Oscar prospects, this year’s ingénue or the exact dimensions of Russell Crowe’s salary.

But chieftains from Universal Studios, who met in New York recently with Brian L. Roberts and Stephen B. Burke, the top executives from the cable giant Comcast — which is proposing to take control of the movie company in a new venture built around its parent, NBC Universal, and Comcast’s entertainment channels — have been talking about “windows.”

NBC Universal is CNBC's parent company.

Those are time frames during which pictures can be viewed in theaters, on disc, over subscription cable channels or via video on demand.

Despite a stall in the talks just over a week ago, Comcast has continued to close in on a deal that would give it the reins of an entertainment company valued at $30 billion. General Electric , which currently controls NBC Universal, would become a minority owner, while buying out a 20 percent stake held by its partner, Vivendi.

Because talks are continuing, executives from both Comcast and NBC Universal declined to discuss their plans for the film studio, which is to be run by its president, Ron Meyer, and his current boss, Jeff Zucker, during a regulatory review that is expected to last as long as a year.

Privately, however, people who have been briefed on the possible combination — and who spoke on condition of anonymity to protect the negotiations — said they expected Universal, hurt by weak films and industry-wide erosion in DVD revenue, to become a laboratory for an owner that might have to reformulate the movie industry’s approach to its own customers.

In the short term, much of Hollywood is simply relieved that Universal has not been scooped up by companies like Time Warner or the News Corporation , which might have absorbed the company’s 4,000-film library while folding its operations into movie units of their own, Warner Brothers and 20th Century Fox respectively.

“Hopefully, it will give stability to the studio, because we can’t afford to lose another major film studio,” Michael Shamberg, a producer of “Erin Brockovich” and “Along Came Polly” for Universal, said of the Comcast deal.

Mr. Shamberg, who was interviewed via e-mail, said that corporate turmoil had recently curtailed activity at MGM, while units like New Line Cinema, Paramount Vantage, Miramax Films and Warner Independent Pictures had already been downsized or eliminated.

Comcast executives have not signaled changes in the mix of films at Universal, staff cuts or another round of management change. Only last month at Universal, its two chairmen, Marc Shmuger and David Linde, were forced out in a shake-up that left the former marketing president, Adam Fogelson, in the chairman’s post, under Mr. Meyer and Mr. Zucker.

It has been a pretty rough patch for Universal, which ranked as high as No. 2 in market share among Hollywood studios in the early years of the decade, but is now a dismal sixth in the wake of flops like “Land of the Lost.”

Internally, many at Universal are nearly giddy at the prospect of liberation from the management systems at G.E., which have galled studio managers since the conglomerate took charge in 2003, after successive ownership of the studio by Vivendi, Seagram, Matsushita and MCA Inc.

Under G.E., film executives have complained about what they see as a rigid insistence on quarterly profit growth — difficult to sustain in a business where a surprise hit like “Mamma Mia!” can be followed by a heavily promoted disappointment like “The Express” — and management review systems that have complicated routine matters like the hiring of a lawyer or a change in a release date.

Little Choice for Comcast

Whatever its intentions, Comcast would have little choice over the next year or two but to stick with a slate of films that is largely in place. In May, the studio plans to release its long-planned Robin Hood film, which is directed by Ridley Scott and stars Mr. Crowe. Beyond that, films in the works include a “Meet the Fockers” sequel, and a comic adventure, “Stretch Armstrong,” based on a Hasbro toy.

In February, the studio is set to release “The Wolfman,” a period horror story, and in March it has a Matt Damon war thriller called “Green Zone.” Both were shot in 2008.

But executives and others briefed on the proposed combination also anticipate a thrust into digital distribution perhaps as aggressive as that signaled by the Walt Disney Company, which last month announced a new system, Keychest, intended to let consumers own digital entertainment for use on whatever device or viewing system they might like.

“If you buy a house, the new owners are going to put money into that house,” offered Chris Silbermann, the president of International Creative Management, though Mr. Silbermann said he had no specific knowledge of Comcast’s plans.

One obvious possibility could involve selling films to Comcast’s 24 million cable customers, via video-on-demand, at or near their DVD release dates, without the expense of a middleman.

A video-on-demand pioneer, Comcast picked up experience on the cheap when it invested a relatively modest $300 million in a partnership that since 2004 has owned MGM, and gained access to that company’s film library.

To date, about 90 percent of Comcast’s extensive on-demand offerings have come without additional charge as part of a basic subscription package, a system that has built customer loyalty and taught consumers to select films on cable rather than disc.

But the company for two years has been testing fee-based on-demand offerings simultaneously with DVD releases from at least seven companies, including Warner Brothers and Fox, in a number of markets, and has offered films as prominent as “Twilight,” “Gran Torino” and “Bride Wars,” splitting revenue with the studios that released them.

Photo: Ragesoss

NBC Rainbow Room 30 rokefeller Plaza

“For the first time, the ability to watch a movie becomes an impulse,” said Ryan Kavanaugh, whose company, Relativity Media, has helped finance films like “Fast & Furious,” “Duplicity” and the coming “MacGruber” for Universal. “I think it grows our business exponentially.”

Mr. Kavanaugh is one of many film executives who contend that a quick push toward on-demand can shore up industry profits that have been hollowed out by annual declines in disc sales.

If Comcast, or any owner, were to fail in devising a digital fix, the Universal studio — and the industry at large — could face radical changes to bring its operations in line with the fall in home entertainment revenue, said others who have been briefed on the situation at Universal.

The possibilities include a sharp reduction in the home video staff; the outsourcing of work now done by their own departments, like legal or marketing; and perhaps a severe review of expensive producer deals, weighing the legacy value of longstanding associated companies like Imagine Entertainment, Working Title Films and Stuber Productions against their prospective profitability to the studio.

Brian Grazer, chairman of Imagine, declined to be interviewed. Eric Fellner and Tim Bevan, the co-chairmen of Working Title, and Scott Stuber, the principal owner of Stuber Productions, did not respond to queries.

Still, others predict that the film business, whose profits are already something of a rounding error within large corporations like G.E., Sony or the News Corporation, will only recede further as Comcast becomes preoccupied with the potential of other media properties that come with NBC.

“In a way, it’s the worst possible news for Hollywood,” Roger Smith, a former studio executive and editor in chief of Global Media Intelligence, said of Comcast’s proposed control of Universal within a much larger complex of cable channels and broadcast properties.